When push comes to shove and the debts can’t be paid, putting a business into voluntary administration can be a sensible move. It’s important to not fear voluntary administration, as it’s a way to restructure the business and hopefully get back on track.
In this situation, an administrator takes control of a company, reviews the finances and hopefully bring the company back to life. If this isn’t possible, the administrator will try to ensure all creditors are better off than if the company was liquidated.
During the voluntary administration process, a total of two meetings will be held. These meetings ensure that all creditors are kept up-to-date regarding the financials of the company and the administration process, and are known as creditors’ meetings. They also provide an opportunity for creditors to give approval or guidance on matters that pertain to the process.
Along with notice of the creditors’ meeting, creditors must also be provided with a claim form and a proxy voting form.
The claim form is generally a ‘proof of debt’ form to prove that a creditor has a valid claim against the company. This notifies the administrator of your claim and ensures you are able to vote at meetings. Invoices or any other supporting documents should be attached to the claim form.
The proxy voting form is used if a creditor cannot attend the meeting, but still wants the opportunity to vote, giving another person or the administrator the ability to represent them at the meeting.
Who is classified as a creditor?
While the term ‘creditor’ is not defined in the Corporations Act 2001, it is generally taken to mean a person who has a debt or claim against a company. Claims can be present or future.
The first creditors’ meeting
The first creditors’ meeting must be held within eight business days of the company appointing the administrator. Additionally, notice must be given at least five business days prior to the meeting being held.
During this first meeting, two things must be decided by the creditors in attendance.
- Whether the current administrator will continue or whether a replacement needs to be found.
- Whether a committee of creditors will be formed and, if so, who will sit on it. The committee will assist the administrator and approve any fees.
- If a creditor wishes to replace the current administrator, a new registered liquidator needs to be approached prior to the meeting. Written consent must be given that he or she would be happy to take on the administrator role.
Usually, the first creditors’ meeting will follow a specific format.
- Creditors will be provided a copy of the estimated statement of affairs.
- A nominated director will read aloud a statement that outlines the company’s history and the causes of the failure.
- Creditors may ask questions.
- If a new administrator is to be appointed, a formal vote will be taken.
- If a committee of inspection is to be formed, up to five creditors and three shareholders can be nominated.
The second creditors’ meeting
The second creditors’ meeting is generally held approximately five weeks after the start of the administration process. It follows the investigation process and during the meeting, creditors are given the opportunity to decide the company’s future.
At least five business days prior to the meeting, the voluntary administrator must send creditors various documents so they are prepared for the meeting. These include:
- A notice of the meeting
- The report by the administrator
- If a Deed of Company Arrangement is going to be advised, a statement about this proposal
The administrator will assess which of the three possible options for the business is in the best interest of the creditors. These include:
- Control of the company goes back to the directors. In this case, the voluntary administration process would be deemed unnecessary and the company would be deemed viable.
- A Deed of Company Arrangement (DOCA) is designed, stating the intentions of the company moving forward, or;
- The company is wound up and put into liquidation.
The administrator will give an opinion on each possible option and then recommend which he or she believes is best. In each case, there are different outcomes. If control of the company goes back to the directors, this occurs immediately. As the company has continued to trade as normal during the process, not much would change. If the creditors decide that a DOCA is the necessary step, the company must sign the deed within 15 business days and the deed administration begins. If the company is put into liquidation, the administrator becomes the liquidator and the process begins immediately.